Electing benefits in union mpp

[Guest Grendel]

I have a union money purchase plan negotiating a new contract. Currently, the contract has X+Y dollars allotted for benefits with X dollars per hour for pension and Y dollars per hour for insurance (health, dental, life, and disability). The union wants to give participants the ability to elect to have the pension dollars applied to the insurance costs on an annual individual basis. Is this type of wording allowable in the union contract?

[Bill Ecklund]

1. Is this a plan for union members only, or do all of the employer's employees participate?

2. Is the Union asking for the right to annually elect to be in or out of the plan, or is the Union looking for the ability to shift some, but not all dollars from pension to health & welfare?

Generally a mpp requires a fixed annual contribution (either a percentage of compensation or a fixed dollar amount) that is not subject to an annual discretionary adjustment by the employer. It is possible in the context of a union contract to create two or more classes of workers and have different contribution levels including no contributions. What I don't know is whether the employee could be allowed to switch classifications annually.

[IRC401]

See PLR 9104050.

If each union member has the ability to choose between health and pension benefits, the IRS will probably take the position that the protion going to health benefits is taxable under the Assignment of Income Doctrine. See also PLRs 9406002, 9513027, and 200120024. [For what it is worth, I think that the IRS is wrong.]

On the other hand, if the union negotiated a different split per employer, depending on the preferences of an particular employer's workforce, the program might make it past the IRS' objections.

[KJohnson]

I agree that if you negotiate a different "deal" on an employer by employer basis there shouldn't be a problem. However, I don't think it will work on the participant level unless you jump through several "hoops."

For a number of reasons, collectively bargained money purchase pension plans have "reclassified" themselves as profit sharing plans with a mandated contribution contained in the collective bargaining agreement (employer delinquencies being the primary concern). Therefore, I suppose what you could do is 1) reclassify your mpp as a profit sharing plan 2) add a 401(k) feature to the plan and 3) add a 125 funding arrangement to the welfare plans. An employee could then elect to take money in cash, defer it into the 401(k) or purchase additional welfare benefits through the cafeteria plan.